LEXINGTON — Lexington’s Police and Fire Retirement Fund Board on Wednesday approved a higher employer contribution rate for the coming fiscal year, even as the pension system posted strong investment returns and modest gains in overall funding health.
The board voted unanimously to set the city’s required contribution at 51.24% of payroll for fiscal year 2027, up slightly from the prior year, following an actuarial presentation showing the fund earned a 10.87% investment return in the most recent year — well above its assumed 7% rate.
The system’s funded ratio improved from 71.3% to 72.5%, while unfunded liabilities declined by about $2 million, according to the annual actuarial valuation presented by Cavanaugh Macdonald Consulting. Total assets now exceed $1 billion, with roughly $386 million remaining in unfunded obligations.
Despite the positive investment performance, the actuarial report emphasized that most of the employer contribution increase is driven by the fund’s legally mandated effort to pay down legacy pension debt on a fixed schedule set in state law.
“This is the period where you’re finally paying principal, not just interest,” the actuary told the board, comparing the system’s funding plan to a mortgage nearing its midpoint. “You should see funded levels improve more quickly over the next several years if returns stay near assumptions.”
The board also discussed long-term concerns about volatility under the current statutory amortization method, which requires new gains or losses to be paid off on the same shrinking timeline as existing debt. The actuary again recommended adopting a layered amortization approach — similar to Kentucky’s state retirement systems — to reduce future budget shocks. No action was taken Wednesday.
Board members also raised questions about how staffing shortages within the police and fire departments affect pension finances. The actuary said while fewer employees slightly reduce short-term cash inflows, contribution rates are calculated independently of headcount and do not materially change the system’s long-term funding outlook.
Beyond the actuarial vote, the board approved routine financial reports, benefit disbursements, survivor annuities, and a lengthy list of police and fire retirements — representing more than 400 combined years of service — along with several disability benefit actions.
During closing remarks, board members expressed concern about cost-of-living adjustments for retirees, noting that many pensions are capped well below inflation and continue to lose purchasing power. No legislative proposals to address those limits are currently advancing.
The meeting was held Wednesday morning at City Hall by the Lexington–Fayette Urban County Government Police and Fire Retirement Fund Board.
